Farmers are happy with how much tax they pay. So is Peter Dunne and Bill English. Are you happy?

Inland Revenue Department figures provided to Labour MP Stuart Nash show the average tax paid by dairy farmers in the 2008/09 year was NZ$1,508, despite the average Fonterra payout being over NZ$500,000, the Dominion Post reported.

Finance Minister Bill English this morning moved to defend farmers who were operating within the rules, saying that year was particularly bad in terms of a low Fonterra payout, but signalled changes will be made in tomorrow's budget to "specifically tighten the taxation of farmers further," although he would not go into more detail.

Interest.co.nz understands the changes would be minor, technical changes made to ensure tax could not be avoided on some aspects of farm business.

'Dire financial trouble, or writing off income against expenses'

IRD figures showed the 17,244 entities registered as being in the dairy sector, including companies, trusts and individuals, paid only NZ$26 million in tax.

The data showed that 9,014 or more than half reported a loss for the 2008/09 year and 2,635 reported trading income of between NZ$1 and NZ$20,000. Nearly 40,000 of the 72,000 companies in the primary sector were unprofitable.

"Either we have a sector in dire financial trouble or the sector is simply writing off a lot of income against expense and not paying tax," Nash was quoted as saying.

Parliamentary Library figures showed Fonterra earned NZ$1.86 billion before tax on turnover of NZ$61.6 billion from May 2007 to January 2011.

Fonterra's after-tax profit of NZ$1.88 billion included net tax credits of NZ$28m, which was equivalent to a tax rate of minus 1.5%.

Revenue Minister Peter Dunne defended the tax paid by the dairy industry and said NZ$26 million paid was not low.

He said those not classified by industry paid another NZ$1.5 billion in tax and a significant number would be dairy farmers.

"We don't think the [tax] figure is as low as NZ$26 million by any stretch of the imagination."

The PM chimes in

Prime Minister John Key also went in to bat for farmers, saying he thought they paid their fair share of tax.

“That was a story which confused revenue with profits and what people actually pay tax on. There’s nothing actually different about a farming business than there is any other business, that you have a lot of revenue, you take off your costs, and the balance you pay tax on," Key told media in Parliament.

"I’ve seen some reports from DairyNZ saying that, on average, they pay about NZ$300 million worth of tax a year. I don’t know the exact numbers myself, but I suspect you wouldn’t want to take one snapshot, and also compare apples with oranges, which is what that media report did," Key said.

'They have to pay tax on their profits'

Meanwhile, Finance Minister Bill English said farmers had to pay tax on their legal profits, and anyone avoiding tax illegally would be getting prosecuted by the IRD. However he also signalled changes will be made in tomorrow's Budget to specifically tighten the taxation of farmers.

“Well the system’s designed to be fair, and in fact we have in the last couple of budgets closed up opportunities for people to avoid tax, and last budget committed over three or four years about NZ$100 million to chasing down tax avoidance," English told media this morning.

“The [Dominion Post] story itself I think makes the mistake of categorising the turnover of half a million as their income, and that’s simply not the case," he said.

“A dairy farm, like any other business, could have a turnover of NZ$10 million, but if it’s spending NZ$11 million on wages and supplies, then it’s losing money and may not be paying tax.”

Those numbers used in the article were from the 2009 year, when the dairy industry had a particularly bad year, English said.

"Look, they’ve got to keep [to] the rules, same as everyone else. We’ve been tightening those rules up around things like trusts, qualifaction for student allowances and family assistance – those rules were all tightened in the last budget," English said.

"In the end we want a profitable dairy sector. I think this year with the higher payout they are going to be paying a lot of tax. But regardless of whether they have big profits or small profits, they’ve got to keep the rules the same as everyone else, and those rules are tightening," he said.

“They have to pay tax on their legal profits, and if anyone’s been avoiding tax illegally, then IRD will be setting up to prosecute them."

Tax changes for farmers?

The Dominion Post story was based on a mistake, English said.

"The mistake is to say that NZ$500,000 is the income of a dairy farm. That’s simply not the case."

“It’s like this business here. This business might have a turnover of who knows – NZ$10 million – but actually a lot of that goes on employing people who are printing the budget, and that means it’s not taxable,” he said. English was at a printing business in Lower Hutt that is printing the government's budget, to be released at 2pm tomorrow.

“I’d suggest you go and talk to the dairy farmers about whether they’re making money, and to their accountants," English said.

“It’s quite possible that on a half a million dollar turnover, in a lot of businesses, that they don’t actually make any profits. In fact if you go and talk to the small businesses in Lower Hutt, you’ll find that many of them do have turnover in the hundreds of thousands, are making no profits, and paying no tax," he said.

That was not good for the economy.

"We want these businesses to be profitable and paying tax. In the dairy sector the payout that year was about NZ$5.20, this year it could be over NZ$7 . They should be paying a lot more tax [this year] because they’ll be a lot more profitable, and that’s a good thing,” English said.

“There’s no suggestion that the rules are any different for dairy farmers than any other business. If they make profits, they have to pay tax, the tax rules have been tightened in recent years. It is actually a fact that a lot of businesses don’t make money, and when they don’t make money, they don’t pay tax," he said.

“We want them to be profitable, particularly our export sector, and when the figures for the 2011 year are published, I’m sure it will show they’re paying much higher tax because they’ll be much more profitable.”

People couldn't just choose how much tax they paid.

"There’s a set of rules and you have to comply with those rules. Those rules have been tightened," English said.

“In fact in the budget there’ll be some measures that specifically tighten the taxation of farmers further, and IRD are committing significant resources to tracking down any tax avoidance, and that’ll also be evident in the budget,” he said.

'Simply wrong'

Revenue Minister Peter Dunne said the article was simply wrong, with an "inexcusable fudging of turnover and income".

“This is a classic case of comparing apples and oranges – the media and the Opposition have conveniently ignored the fact that businesses, including farmers, are not taxed on turnover, they are taxed on the income they have as profit,” Mr Dunne said.

“The particular instance cited was for 2008-2009, when dairy farmers received significantly lowered Fonterra pay-outs, and were servicing very high debt levels across the sector at high interest rates.

“Federated Farmers has stated that the average dairy farmer made a $50,000 cash loss in that year. In that case, pointing to $500,000 incomes is patently ridiculous. Again it is the difference between turnover and profit,” Mr Dunne said.

'NZ needs a capital gains tax to stop this behaviour'

Green Party co-leader Russel Norman said the absence of a more comprehensive capital gains tax meant some farmers and rural investors ran farms in order to receive untaxed capital gains when the farms were sold, while not paying tax along the way.

“The absence of a comprehensive tax on capital gains allows some farmers to make huge untaxed profits while leaving other taxpayers to pay for government services like schools and hospitals,” Norman said.

“The absence of a comprehensive tax on capital gains (excluding the family home) makes our tax system hugely unfair,” he said.

“Some farmers and agribusinesses are farming for capital gains, enabling them to avoid paying their fair share of tax. They are borrowing heavily for farms and then claiming the cost of the interest payments against their tax bill, so they pay little tax. Then they sell the farm and take all the capital gains tax-free, making a tidy profit subsidised by other taxpayers.”

A capital gains tax would close that loophole and ultimately put downward pressure on farm prices over the longer-term. It was also perhaps the best way to keep farms in family ownership, Norman said.

“The problem isn’t limited to rural land. The same tax game is being played out in the housing market as well. Property speculators are pushing up house prices in their pursuit of tax-free capital gains. The Government’s Savings Working Group blamed tax rules for half of the recent increase in housing prices,” he said.

“When questioned in the House yesterday, Prime Minister John Key continued to defend the status quo saying that a capital gains tax would be ‘inefficient’ and ‘difficult to apply’. New Zealand is one of the few countries in the OECD that does not have a capital gains tax.”

The IMF, OECD, and the government-appointed Savings Working Group had all come out recently in favour of a more comprehensive capital gains tax.

“The biggest winners from a capital gains tax would be the productive sector, as the new tax would drive investment out of speculation in property and into manufacturing and export sectors. First home buyers and those wanting to buy a family farm would benefit too,” Norman said.

“A capital gains tax is a critical component of rebalancing our economy. It would raise much-needed revenue at a time of record government deficits. As such, it should be a central feature of the upcoming Budget,” he said.

'Need to set the record straight'

Meanwhile DairyNZ put out a release saying the average tax paid by dairy farmers over the last decade was NZ$28,225, "a far cry from the average reported today".

“We need to set this straight. Our figures show that on average approximately $300 million tax is paid per year by dairy farms, not $26 million as claimed. This includes companies, trusts and partnerships,” DairyNZ CEO Tim Mackle said.

“The tax paid in 2009/10 was low in comparison to the taxable income because of the large losses made the previous year, which was a very difficult one for farmers and one of the worst on record financially. The tax paid in 2010/11 will be much higher, based not only on the 2010/11 high income levels but also a good season in 2009/10," Mackle said.

“The 2009/10 figures reported are also distorted by the fact many farmers received tax refunds for overpayment of tax in relation to income for the previous year - that is, their earnings were less than anticipated, because it was such a bad year,” he said.

"That year, the average farm had a cash operating surplus of NZ$380,000 (ie cash income minus farm working expenses) but once interest, rent and depreciation were paid, the taxable income stood at only NZ$126,000."

The figures reported in the Dominion Post did not include the tax income from the PAYE paid by the 35,000 dairy farm workers.

“Dairy businesses work under the exact same rules as all small businesses, and have to deal with considerable market volatility,” Mackle said.

“Our figures show about 10% of farmers are significantly at risk in terms of cash flow, but the majority are managing despite significant debt levels. Farmers would be struggling if it wasn’t for the increase in international demand of New Zealand dairyproducts,” he said.

An NZIER report released in November 2010 stated the dairy sector employed around 35,000 workers and up to 10,000 people who were self-employed.

"It indirectly supports many more jobs in industries that supply dairy, and that experience the benefits of additional income flowing into the region due to dairy volume and/or price growth," Mackle said.

"Dairy's impact on New Zealand's economic health has never been about how much tax farmers pay to the IRD, although that in itself is not insignificant," he said.

“The most important impact is at the level of our contribution to foreign exchange earnings - the fact we account for over 25% of total exports means we have a huge positive effect on New Zealand's balance of payments, which in turn greatly benefits the country’s economic position and influences factors such as interest rates. As the recent NZIER report demonstrates, an extra dollar of payout means every man, woman and child in New Zealand is NZ$270 better off.”

Fonterra shareholders come out firing

Meanwhile the Fonterra Shareholders' Council said the today's 'tax attack' was a cheap shot that ignored the facts.

“Dairy farmers work very hard in difficult conditions, dealing with the weather, swings in the value of dairy commodities, rising on-farm costs and the ups and downs of the New Zealand dollar,” chairman Simon Couper said.

“Farms are businesses like the corner store or the panel-beating shop. They incur very substantial business costs such as labour, electricity, feed, fertiliser, vehicles and on-farm equipment. Many also have massive debts to service. The reality is, if a farm doesn’t make a profit, it doesn’t pay tax,” he said.

The tax bill for individual farms varied enormously.

“Tarring every dairy farmer with the same brush in this way is unfair and irresponsible. Zeroing in on 2009, which saw the lowest payout in three years, is very misleading. The majority of farmers will pay tax this season,” Couper said.

Couper pointed toward the Dairy NZ figures showing the average tax paid by dairy farmers over the last decade was $28,225.

“As NZIER’s report last year showed, dairy farmers spend around 50c in every dollar they receive on locally produced goods and services,” Couper said.

“Dairy provides 26% of our exports, and every tonne of dairy exports helps reduce the current account deficit, bringing down interest rates and reducing mortgage payments for homeowners,” he said.

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You need to sit down and have nice cup of sweet tea and think about what you've just said. You obviously aren't feeling too good today. Stuff up on the recipe did you? I said mango and Barcardi rum, not vodka. Is it sunstroke?

Was thinking Roger that some advocate implementing a CGT on land/property transactions as a fairer, more resonable way to tax land and property. However, in the past you have railed hard against CGT. Have you changed your mind? Or what do you propose instead?

Agreed Roger. I think a land tax would be more effective, although to be fair I think abolishing the intent rule should be done with land and property exempt the resultant gains tax, because an annual land tax is paid on same.

While I see where your coming from Les...he Gumbo has a point (in my opinion) insofar as there has been a real lack of any robust opposition to the sitting administration for the longest time....and that can only be bad for the wider population.

Is it that there is little to be opposed to.....or is it that Labor have regained no real sense of self confidence from having it shoved in their face repeatedly by the present administration that they overspent..on...expanding Govt ...frivilously and wildly..

The people wanted...Helen...gone...there were mistakes made in asumptions as to her rule going unchallenged. Had Goff mounted a coup against her...and lost...he would have more chance of Governing today.

So where is he left..(no pun intended)...To admit past error and promise no return to Hellengrad.......giving himself an identity minus the baggage(he can't admit to)

Or remain as it is and keep getting his balls kicked by the bully boy Nats.....who laugh him off as though he wasn't even there.

Zigzactly right , Count . If Goofy doesn't get his act ( ! ) together , the Nats will sleepwalk to an election victory .

.......... But he and Cunny actually believe that the policies of Clark & Cullen were the right ones . Cunny wants to increase WFF , to ramp it up , to bring more voters , ooooops ..... to bring more families into it's grasp . More kiwis into the arms of welfare , not less .

The only salvation for Labour is ACT ! Don Brash may stir the pot enough to separate the hog jowls from the swamp greens . The Nats could lose some Labour voters back to Goofy and Klinger , and some die-hard National voters over to Donny and Rogie ( the Dead Men Walking Party ) .

This is all the more reason why we need a land tax. A land tax should cover core government services which all residents in NZ use (defense, law and order, central government operating costs). The land tax should be all-inclusive, flat and low. It would be easily collected by simply adding it to rates.

It would capture farmers amd Maori authorities who pay low levels of tax.

I knew a farmer once who would buy fertiliser, pay a sharemilker, give money away to the bank, and buy ridiculous toys like quad bikes hay bailers. What a loser. If he had kept all the money for himself he would have been loaded.

rhys...in my small business I pay contractors, suppliers, buy equipment...I spend my own income on petrol, educating my kids etc...etc...but I also make sure I pay my income tax - no trusts, no gimmicks, straight down the line. And it hurts everytime, especially when you get a big terminal tax bill after a boom year when things have slowed down (e.g. like recession)...if the rich aren't paying tax and the burden falls on the less well-off, it's totally wrong.

It's not unusual for a business to be operated in the way that Bernard suggests, where the front company has no net capital, and a holding company (or trust!!) sits behind it with the assets. This provides protection from creditors etc., but simply transfers the profit to the other entity, which still needs to pay tax.

If, as Bernard suggests, a farm were to carry enough debt that it were technically running at a loss, then the entity providing the debt is either a bank or a holding company. If it's a bank, then the farmer is in big trouble because s/he will have to provide real money to pay the interest, and I would be surprised if banks would be happy to provide mortgages on farms without a reasonable level of capital from the owner, meaning that not all profit can be written off against interest. If it's a holding company, then the interest is income somewhere, and the IRD will take their share.

The other scenario is where a farm really isn't profitable in the traditional sense, and the farmer operates with expenses that roughly equal income in the hope that they will sell it one day for a capital gain. This is a Ponzi scheme, and they have traditionally been difficult to tax.

I understand your point Rhys. I do think though, if your average dairy farmer has a NET worth of $1million plus (which would be my guess), there is a very serious problem if they contribute less to the tax take than low net worth people (.e.g net worth $20K)...structures that accumulate wealth without being taxed need to be dealt with. It is completely unjust.

Farmers aren't stupid.... Many farmers now percieve that they are actually operating 2 Businesses.... One is Farming the other is Property Investment.

In the end, in aggregate, they are doing what any other sector would do... They are using the current Tax laws to minimize their income tax.... They do this by becoming asset rich and cash poor.

My Father did not retire well off by saving surplus income.... He sold a farm for $1.5 million that he bought 30 yrs before for $130,000.... He had plenty of anecdotal stories of farmers who paid NO TAX.... but somehow managed to accumulate more and more Land...

Of course... this applies to all property investment that escapes any kind of Capital gains tax.

The flip side of all this is that PAYE... is probably the most unfair and inequitable type of tax.

A very large proportion of farmers in 2011 inherited their farms from people who inherited it before them from people who in most cases leased it at a peppercorn rate from the govt of the day. Aside from their claimable operating costs, they paid essentially nothing for huge chunks of the country's best land.

This is not to knock farmers or farming, but the fact is that it has almost always benefited from enormous govt/taxpayer generosity where other NZ businesses, taxpayers, citizens and residents have not, which is the reason it remains the nation's overwhelmingly dominant industry, and likely will remain so for generations yet.

Malarkey, there is not a lot of inherited dairy farms around-certainly not a large proportion. That is more usual in the sheep/beef industry. More and more farming families are not leaving the family farm 'to the eldest son' anymore.

Do you not think that our lack of population has something to do with ag being a dominant industry? NZ has one of the largest urban based populations in the world on a per capita basis - think about that. :-)

"Do you not think that our lack of population has something to do with ag being a dominant industry?"

When you invest in nothing but agriculture, agriculture will dominate.

That's what's commonly referred to as a "vicious circle", or a "self-fulfilling prophecy".

Other sectors struggle to get backing, yet the agri-business industry knows it will always have the taxpayers' full (and usually unknowing or unwilling) support, courtesy of venal governments and full-blown cronyism of the worst kind.

Don't underestimate the value to dairy of being largely a co-operative industry. Corporates are here now both in the processing sector and in farm ownership but by and large they are not as successful and large corporate farms struggle with entry level farm staff. - They lack the passion and ability to accept the hard times that the cooperative shareholders/family farms have.

Numerically, dairy is still the majority of family farms. Size wise the majority are corporates. Possible collision course in the making.

Jeeez you post some rubbish malarkey....so you're envious of those who had property handed down to them...you're envious of those who have wealth...you're envy has twisted you malarkey!...."... govt/taxpayer generosity where other NZ businesses, taxpayers, citizens and residents have not".....one brief load of it and you wipe away the truth....

Gertruad, "accumulating" net worth with structures favoruing capital gains as opposed to trrading income is the problem I was getting at most. Farmers work off 2 incomes - trading and capital gans. By focussing on the latter in NZ there is no tax. Still I think it is grossly unfair for a tax burden to fall mostly on people who are poorer.

Accumulating wealth through property is and always has been tax free, whats the point in finger-pointing at dairy farmers? The money used to buy the farm was taxed, same as any other money used to buy goods.

That is a very good point, the assumption being that dairy farmers made an investment descision based on tax laws and reaped a windfall. Which is slightly detached from the reality of 08-09 being a bad season, where farms made a loss and so paid little tax. I what world would farmers have paid more tax, a CGT would have increased the losses for the year and even less tax would have been paid. A more fair system would have created even more sensationalist headlines.

All businesses can claim interest as a tax deduction Julienz, not just farmers. PAYE tax payers benefit from the business being able to employ the PAYE tax payer. Farm workers received on average a 4.9% wage increase last year.

Um, how about its not fair.......if the system is being rorted that badly, it needs fixing....seems a land atx will fix that....and a CGT...all farmers are really doing is dodging tax and then cash out when the retire....if this is how its meant to work then its broken...

Abolish the intent rule, exempting gains tax on land and property, because such assets could be covered by a land-tax. Job done. All as per the sensible and rational analyses covered by the TWG. The only reason not to is vested interest, you know where, plain and simple.

Don Brash is a flat-broad taxer, perhaps he and ActII will press for appropriate change?

Amazing. If my business had a half-million dollar turnover and I made no profit whatsoever I'd be changing my line of business! I thought the whole point of a business was to produce something, be it goods or services, and make a profit. If that's not happening then what's the point.

Elley, there's a difference between an operating loss and a tax loss - they are not necessarily the same. As I have mentioned on other threads paper stock losses (due to IRD revaluations) can amount to very significant tax losses.

CO - given the numbers, wealth and wealth generation involved, what would you say might be a fair and reasonable average amount of tax for dairy farmers to pay, annually say? More than $1508 pa, or less than?

I would love to pay only $1508 but sadly that is not the fact for me - all I know is that I pay in the high five figures Les, - probably more than you pay. :-) So I guess some of us are paying more than our fair share. ;-) That figure comes off one of the worst years for quite some time for dairy farmers - drought, low production and low payout. This current dairy tax year I would expect to see a considerable increase in tax paid by dairy farmers due tot he increased payout and the paying down on debt, which in effect attracts tax.

There is an implied assumption on this blog that all dairy farmers for tax purposes are farm owners. I would wager that that is not the case. Contract milkers/sharemilkers/equity managers are also dairy farmers. These are usually younger farmers with young families to whom WFF apply.

Here's a true story for you Les. I know a farming family, debt free, who thanks solely to IRD writing down stock values, made a very substantial loss that they will carry forward for more than 2 years, paid no tax and get the community services card. And they have just gone and bought a 2nd farm. They are a couple trading as a partnership, no fancy trust or company for them. Stock on Hand values is a dodgy area as far as I am concerned, whether you are a retailer or a farmer, the ability to create a tax loss simply by this adjustment alone can be significant.

Value of assets has nothing to do with ability to produce income. Individual farms have a fairly finite ability to produce e.g. a farm capable of producing 100,000kg/ms when purchased may only be able to increase production to a max of 120,000kg/ms. if the farm has being held for many years the purchase price when bought may have been as low as $10kg/ms. Today that farm may be 'worth' $28kg/ms but the production base won't have changed so its worth is only a paper value unless it is realised. Though the value has gone up the productive ability is unchanged and you know as well as I do, that in farming as in many business, there are good years as well as bad.

Good to hear you are eating Milk Cake - lots of healthy stuff in that. :-)

Forget the self-justifying waffle, answer the questions, "what would you say might be a fair and reasonable average amount of tax for dairy farmers to pay, annually say? More than $1508 pa, or less than?"

A land tax would be a lot smarter then a CGT. Though it would be written down as an expense and hence dairy farmers would have paid even less tax, unless you have a 'dairy farm only land tax' which would be unfair and unreasonable.

So true! Scrap it all together and watch how that changes the mix in terms of investment behaviour.

I believe that in the US, interest paid on owner-occupier household mortgages is also tax deductible - and I wondered what the case was in Aus. The fact that it is not tax deductable here looks to be yet another discriminatory tax treatment in favour of land-based (capital gains) business models.

I would never be so arrogant St Pat as to say how much tax anyone should pay. The figures below show the huge variations in production and costs between farms-taken from the 2010 MAF Farm Monitoring Report.

The profitability of the model improved markedly compared with 2008/09, particularly given that 2008/09 was a very poor year financially. Farm profit before tax increased 3300 percent, to $202 800 in 2009/10, from a loss of $6300 in 2008/09; the cash surplus increased to $89 800, up 254 percent from a deficit of $58 500; and the farm surplus for reinvestment increased to $134 900, up 368 percent from a deficit of $50 400.
›› The general economic downturn has made farmers very aware of debt issues, and repayment of debt is a top priority for surplus funds on many farms.

Budgeted principal debt repayments have increased 62 percent over 2009/10, up from $36 700 to $60 900, as farmers continue to focus on debt repayments. Overall, the model is budgeted to finish the year with a cash surplus of $30 000 and a farm surplus for reinvestment of $120 800.

Rates are based on capital value. In the rural ward I live, but do not farm, the ward pays $2.4m per year more in rates than what the council needs. Where does the rest go to subsidise the urban ratepayers. The farmers in this area will have an 11% increase in rates this year while 'low value rural properties' will receive a reduction in rates.

A fair and reasonable land tax would not be a problem so long as at the same time there is an overhaul of local body funding and a cap on rates no larger than the rate of inflation. A pensioner living in a seaside home could be paying as much in land tax as a 200 cow dairy farmer, on that basis.

The average size of a dairy farm varies quite a lot region by region 96-210ha.

Good effort CO. Things sure have progressed since I signed off late afternoon. Looks like Nash touched a nerve. Kiwiblog is worth a squizz on this.

Lotsa data being bandied about and until Bernard punctured the DairyNZ data linked to by cam about 4pm, I was toying with a rate per hectare based on your average of 153ha and their number of $28kpa, over the last 10 yrs. However it seems that was from a small "self-selected" (unrepresentative?) sample.

It'd probably be more helpful if we could look at the averages of the last 10 years, inc. all operating d.farms. A big'ish job, I wonder how it would look? Better, worse?

Anyway, I think the reactions speak volumes in themselves. The problem is having a business that so closely runs property investment along with income generation in such close proximity, given our tax regs. It's one of the root causes of our unbalanced economy, given same regs. disproportionally benefit property speculation elsewhere, sigh, again. (Hence some of the reactions; people joining dots real quick today.)

Re. rates, agreed.

Re. pensioner, 200 cows, nope, system could be configured to avoid that problem and we'd have different rates per asset type, land type and accommodation of income fluctuation. All not difficlut, if the will is there to make things fairer, but it isn't, unlike say your good self who agrees with a land tax. Phased and reasonable, with other tax rates going down, getting flatter = better for all. (Except that bottom 10%!!)

Bernard why are you picking on the one year that many Dairy farms went to the wall?. Dairy farms did really bad in that year you have supplied the data for the drop in the payouts. They were too much in debt and expenses rose over the good times, as they do Gross income and net profit have no correlation as Mr Dunne says. Yes it was a silly time and the bubble had to burst. In reality there are very few tax incentives in the dairy industry or even overall There was one year when tax credits were available. Labour bought them in and National took them out. Fonterra is one, if not the the biggest funder of research in NZ. Lets crticise Fonterra for doing research.? It is partuculary generous to others who do research. Havent you said that we need more R&D? Fonterra has undertaken and funded R&D for numerous years not just the one Labour said you could have a tax credit for it. Labour way trying to copy OZ. I agree there are perceived issues with business paying tax, but people do not understand about competition, investing in the future and a raft of other issues that make business difficult. I thought real productivity was the issue?. Lets blame a minority that in general works hard. Ring a bell or two in history??? Still as you are showing, time and time again, perhaps that is unavoidable

An over leveraged sector has a bad year and suddenly its exciting that they didn't pay much tax? Can you say 'tall poppie'?

Impaired and past-due farm loans are now the highest of any sector and have more than quadrupled to over 4% of loans in the last three years.

I doubt a CGT would have increased the tax farmers paid in '08-'09 land values were not exactly going up . Farms are way overvalued and in terms of return on assests they make kiwisaver look like a goldmine.

Tax is only paid on profits, it seems as though reporters assume that farmers always make a profit every year, and somehow there is a law saying that dairy farmers don't have to pay the same tax as everyone else?

The reality is that when you are in business you have far more controll over how much tax you pay, then someone on PAYE, that is true for any business and it is ridiculous to single out dairy farmers.

I do everything I can to minimise my tax bill, and so should everyone, unless you think the Govt is doing a good job spending it.

Your right, the privileged elite have too many privileges. They can still be elite so long as they don't have any priviliges. We need unfair laws and taxes that benefit the poor and middle class, instead of unfair laws that benefit the elite.

Definitly, and it needs to change. Change is inevitable, with plenty of historical precendent. Wealth is built upon exploitation, and is allowed because of the assumption that anyone can become rich. Once the poor realise that, that wealth is forever beyond each and every one of them then change occurs.

So malarkey believes nobody should be allowed to become rich and the way to prosperity for everyone is to hammer those who do get rich with stonking taxes designed to steal wealth from them and hand it out to the rest....that's about it isn't it malarkey...!

Should somebody with a family who earns around $25,000 p/a be expected to pay as much as somebody who earns $250,000 p/a?

What's that? Oh right: "They shouldn't have had a family if they only earn $25k! It's their fault they aren't rich! They shoulda worked harder at school! Look at me - I'm a squillionaire and I started with nothing...besides my doctor father and lawyer mother...and free uni...and that job my rich uncle jacked up for me...and my wife's wealthy family...but I worked for my money, yessir!"

As much as you hate to admit it, 25% of a $25,000 income hurts a LOT more than 35% of a $250,000 income...Even if the richer person is earning less than $250k p/a, their wealth will always be greater than somebody in a low tax bracket who earns much less.

But of course what we actually have is the top earners paying essentially nothing, while the low income people keep the country going.

Yep Wolly, that's truly fair in a "I'm an insane Ayn Randian" kind of world. You spoilt little old tossbag.

The reality is that when you are in business you have far more controll over how much tax you pay, then someone on PAYE, that is true for any business and it is ridiculous to single out dairy farmers. - What a load of self-serving crap!!!!! Can you imagine how angry farmers would be if they found out that some rich business paid no tax while the farmers were paying heaps?? Pay your fair share or get out of NZ because I am sick and tired of supporting YOU BLUDGERS!!!

I assume you have a good grasp of what is fair. I would like to hear it. The tax system would be unfair if you had to pay tax on losses as well as profits.

I have some well paid staff, I support local business and I pay tax on profits. I'm sure farmers would be less angry then you if they heard of a business with a massive capital outlay that had a bad year and made a loss. It's not uncommon.

Tax numbers for other years would be helpful but it does highlight a major tax policy floor.

Why are we the only country that does not impose a capital gains tax???

Is it any surprise that without a capital gains tax dairy farmers and property investors will simply structure their affairs so they build tax free capital (realised on sale) rather than income which does get taxed???

The govebnment said lets put in a CGT. IRD said no it will cost more to administer than revenue would be raised. Ie taxpayers would be out of pocket. It should have been done decades ago. The horse has bolted

Because Julz........selling properties to foreigners and each other is what we do ...outside of milk solids of course......Soooo.. many ...many vested interests(not least our own reputable banking system) ....highly leveraged....have a stake ...in seeing that continue.....without encumbrances.......unabated.

I am amazed by most of the comments on this thread. Firstly, like English says, for the article to deliberately confuse revenue and income just shows the financial illiteracy of the journalist.

ALL businesses work hard to reduce their tax liabilities --to think otherwise is just naive. Why does the "Tax Accountant" profession exist ? Why a/were all these people investing in properties and off setting their loses against their paye taxes ( LAQC's) ? Why was GreenPeace all upset at losing its charity status ? etc etc

I am not totally supporting the existing tax system with my comments --just that the rules exist for "the game" and as long as someone obeys the rules we cannot complain. Just as Muldoon once said " exploit a loop hole if you can but don't moan when I close the loop whole" ( or words to that effect.) I am all for the IRD coming down hard on tax avoidance.

To me it's not that farmers are legally minimising their tax. It's that farmers love to accuse everyone else of being bludgers. Whatever moral high ground they believed they still possessed, it has just been washed out from under them by a colossal flood of reality.

"To me it's not that farmers are legally minimising their tax. It's that farmers love to accuse everyone else of being bludgers."

Bam!

Nailed it.

Still, having to forever listen to the agri-business sectors screaming at us about how they're the backbone of the country, and were it not for them New Zealand would be nothing, and how much this country owes them, it comes as something of a shock to discover that they are in fact all take and no give.

There is no story here only political scaremongering. 2009 was a poor year for everyone not only farming (anyone remember GFC??). The figure is quoted as an average and I would suggest that a great majority of farmers made a loss that year thus skewing the figures - then there is a question of the data accuracy???? (but that's another blog!)

They adhere to the same business and tax rules as everyone else - what about all the other industry or business sectors? There is no fair objectivity to this story. If it was not for their contribution to the economy where would we be now? (PIGS is an exclusive group I do not want to join!). J

I am a bit surpised by all the outrage, it is welknown within the dairy community that some farmers hardly pay any tax.

A friend told me he payd his first tax last year since 12 years, during that period he grew the business from 300 to 2000 plus cows doing 1mil plus solids. His farms wil be worth ( 1mil x $35 per solid) 35 mil, if he has 50% equity he made 15 mil tax free during that period. Simply by deducting development costs of unconverted sheepfarms into dairyfarms, as soon as there was any thread of having to pay tax he simply bought another farm.

He has done nothing illegal and can stil be done today, I however do not consider him a farmer any more he has become a property developer.

Nash is quoted as saying "either we have a sector in dire fianancial trouble" Hello where has he been the last 3 years.

2001 dairy debt $8.80 kg solids

2010 dairy debt $24.00 kg solids

There are 23,000 dairy farmers

The Dom post article deliberately mis informed for sensational headlines. Not comparing same years. Gross income very different to taxable income. The year 2008-2009 a very tough year for all farmers. The payout was only $5.20 that year.

Cost of production increased 38% and returns only up 4%. You don't need to be a rocket scientist to work that out, couple with droughts in most areas. It takes 2 years to recover from drought effects for every drought event.

I suspect the tax take for this 2009-2010 will be much the same. And definately worse for sheep and beef sector.

Stated in article that average gross income $500000 take of half for farm expenses, leaves $250,000 take of $100,000 for wages and labour, leaves $150,000, take of interest and principle payments leaves $50,000 and hope that local body doesn't want effluent system redone Take of $75,000, hope that you don't have a drought,flood or storm and what is left SFA.

Coupled with devalued land prices and decrease in debt equity which means your risk factor goes up and so does your interest rate.

There are rules in place to deal with quick turnover of land already they just aren't used.

Shame on the Dom post behaving like a tabloid and reducing itself to the lowest common denominator and just giving people a sensational 20 second sound bite to boost sales.

Farmers work bloody hard for this country and at least we produce something and New Zealand would be stuffed without the overseas earnings. ( yeah I can hear the howls of derision already, Do your worst)

I don't disagree with any of the points you make aside from the one above.

Get real, farmers work bloody hard for themselves - and most I know wouldn't give up the lifestyle, or the perks for anything.

The stereotypes that many people associate with farmers arises from that sort of statement - implying the country owes them as the output of their labour is more important than everyone elses.

Grrrrrr... especially when we take into account the huge environmental cost associated with the way we regulate (or do not regulate as the case may be) these land use activities. And now I see we're going to subsidise the irrigation of private land.

One REALLY has to think twice about all this in light of these numbers - even if it was a bad year! Why would any government lend the support of the general taxpayer to such a high risk industry?

Ask an accountant which clients hate paying tax the most? Ask your kids who is getting student allowances while at university? Ask doctors which category of clients who have community service cards suprise them the most? The word "farmers" will generally be the response. Not a suprise really when you get talking to the ones you know and meet. They generally want it all for free and even want us to look after them in rest homes while their millions sit in bank for the kids. No wonder the country is in the proverbial when they are not paying their fair share of tax and are not paying for services people on paye have to such as doctors visits and student costs.

I notice Bill ("The Dipton Kid") English is very defensive regarding his farming confreres. Plain to see whose interests he is most interested in - the dairy farmers or the equitable payment of taxation in this country.

Hard to imagine looking at his comments that the budget changes will be more than token cosmetics!

The average dairy farmer has $2.8 mil of debt. Imagine how much money the banks are making on this. Dairy profits are not flowing into the rest of NZ as Federated Farmers keep telling us, mostly it is going to the banks. Then, when farmers want to retire they sell out to overseas interests for millions, tax free, cutting out the next generation of NZ farmers.

We are paying the highest milk prices in the world.

Now they want to cut Kiwisaver and WFF. All the while the farmers and National bleed the country dry.

Yes... a great deal of money is going to the banks..... U described the game better than i could.

Step back and take panoramic view.... it is all a little bit crazy...

And u have nailed it on the head.... The game is making it very hard for the next generation that might want to go farming... My guess is that farming is no different to the general wealth concentration in the western world.... fewer and fewer people are owning more and more of the Assets.

AND... it is a game.... with the primary beneficiaries being the BANKS...

Someone here said that it does not matter what the Capital Value of a farm is... it can only produce so much... In that regard Cpaital gains have become a hangmans noose... Farmers have probably been factoring in Capital gains as part of their ROI.... and with the "Crafer " type of reckless borrower/investor.... that forces the rest to pay too much if they want to participate in farming.... (and having been brought up on a farm, it is a great lifestyle.)

The vulnerable farmers are probably young, hardworking people who have got caught up in the exuberance of the game ...over the last 10 yrs.

It is so obvious that the distortions are man made... They are Govt fiscal Tax policy.

Too much debt is NOT wealth enhancing....

U are right bjr8.... attacking kiwisaver and WWF won't achieve anything....and in fact probably attacks the sector that pays the most tax.... All the PAYE people. PAYE takes it on the chin all the time.!!!!!

Very unfair.... Key and English could "turn the Titanic".. if they really wanted too... but I think they are like possums caught in the headlights... ( headlights being vested interests and old school thinking )

The replys and complaints from the dairy farmers are simply not credible. There is no traction to be gained from claiming to be cash poor when the readers know they have a strong asset base. They have to look at their circumstances relative to other New Zealanders.

Another issue not discussed often enough is the complicity in New Zealand banks offering high levels of financial assistance (loans) to farmers in boom times, rather than assisting them to build good business models.

If this tax claim is literally true (and the numbers can of course be 'framed' for media) the farmers that are crying poor cannot credibly have managed one of the biggest and most sustained commodity booms for dairy in history.

If dairying is that genuinely unprofitable they have their own business models seriously wrong and I imagine plenty of New Zealanders would happily swap their situations on a like for like basis - recognising of course that the improverished dairy farmers must be getting a better deal out of swapping with a non-farmer! Let's get credible and at the same time less tall poppy.

DairyNZ says the average tax paid by dairy farmers over the last decade is $28,225, a far cry from the average reported today.

“We need to set this straight. Our figures show that on average approximately $300 million tax is paid per year by dairy farms, not $26 million as claimed. This includes companies, trusts and partnerships,” says DairyNZ CEO Dr Tim Mackle.

“The most important impact is at the level of our contribution to foreign exchange earnings - the fact we account for over 25 percent of total exports means we have a huge positive effect on New Zealand's balance of payments, which in turn greatly benefits the country’s economic position and influences factors such as interest rates. As the recent NZIER report demonstrates, an extra dollar of payout means every man, woman and child in New Zealand is $270 better off.”

Not too fussed about how much tax the farmer has paid but I would like my $270 for every year that the payout has gone up by a dollar.

Bernard this is an outrage. How could the farmers do this to us ? Why dont you publish the figures for a longer timeframe - surely that will confirm how much farmers are ripping off their fellow New Zealanders.

Or maybe it suits ones cause to selectively publish data ??? Sort of dovetails in nicely with your ongoing calls for CGT and LT.

The PIs and pensioners will no doubt be happy your dart hit missed their part of the board today......

As an ex-cocky who cashed up fairly young to pursue other interests, I can categorically say that farmer's absolutely resent big time the idea of paying much tax !

And this year we will see some pretty big tax bills come the farmers' way as they have been prioritising paying down debt rather than spending up large on maintenance/development etc. And as Cameron Bagrie said last month at a breakfast meeting I was at, that means farmer's will soon be reopening their cheque books because it's a way to minimise tax - and that is going to be a boost for the general economy. So there's the irony, the farmer increases his expenditure and so reduces his tax, but that gives a boost to the wider economy.

There has to be some benefits to living out here in the wops Steven. No ACC to fall back on when one has a fall. Rates that are crippling. No rubbish pickup for all that rate money... no water provided when I turn a tap on....gotta sort that myself, no damn water pressure so the shower is nothing but a dribbler. When I go to my nearest library I have to pay outsider fees coz its not my rating district. A metal road that just roots my vehicle. It costs me a fortune to get the kids to the nearest school. And just when I get all dressed up to go somewhere nice I check the reservoir indicator and F...k me its always indicating empty. Holidays...when exactly cos heh I gotta find someone to feed the dogs and look after the other 400 animals that are my responsibility. The sun shines for months on end then it rains for months on end, not good for organising feeding those same 4 hundy animals. Oh for a job in town, where some one pays me to go on holiday and water comes out of taps at a great rate of knots, all the time.

Sounds like an absolutely miserable existance. And the large commute to school for the children is yet another high environmental cost in terms of your family footprint on fossil fuel consumption - not to mention you're likely also over account on tyre replacement.

Yes, I thought so - but I can't help but go after the poor miserable me living here in the country without any townie services line.

We just made the move from urban to rural residential - and my rates went from over $3,000 for a 800m2 property - to under $1,000 for a 90 acre place. The fact that rubbish deosn't get collected is actually a savings on those green bins (and we can cart all our recyclables into town for disposal foc). The rain in our tank is free of course. I'd suggest you check your filters as our mucky ones were responsible for poor water pressure.

Point is - life here in the country is great as I gaze down on the lights of the city.

Good for you Kate. I was trying to point out that it isnt all roses living out in the wops. The physicality of the lifestyle, the have to do it all yourself, the dependency on weather etc, if it wasnt for some tax concessions, we could be put out of business. And that would be problematic for the economy, farming needs to be strong, and if we are allowed to defer some income and therefore tax when there has been significant drought for example, so that we survive intact as a business, is that not better for the country as a whole? I know people find that debatable, but I know it helped me this year. So by deferring some tax, (just some!) which I will pay next year, it smoothes out my income which has been a bit up and down with some pretty weird weather.

The water pump is reliant on the water being clean....heavy rain, dirty water, pump not like, pump stops....

John Key seems to be getting very selective on who he listens to; scientists that say NZ water quality is not a problem when there are many scientists that say there is a large problem, and now Dairy NZ self surveyed figures over IRD hard facts.

National have no new ideas, just the same old cuts to spending we have had for 20yrs. We need jobs and pride in our country.

Federated Farmers, National, and Fonterra are going to distroy this country that we all own. It is not theirs to sell to overseas interests or to degrade enviromentally for their own gain.

Off thread but kind of relevant.....goss around town is Landcorp are about to buy another large Manawatu landholding that has unfortunately found itself in a spot of bother...The Nitschke and Capehorn properties (inreceivership) at Waituna west....according to my mate ;-)

Ross, there were some provisional tax changes when farmers affected badly by drought, not sure how much that involved.

Kate, I didn't say the farmers were "owed" something just simply stating that farmers work bloody hard and yes at times farming isn't a good business case, but most farmers are there for the long haul.

Bernard, the report in Dom post deliberately misleading and creates a sound bite that most people will parrot without thinking, along the lines of the redneck brigade.

I don't think the reaction is that farmers protest too much. It has been tough for the majority of farmers the last 3 years and many struggle to keep their heads above water and this sort of media bashing just makes it tougher.

Someone commented that young farmers are being stopped from entering farming sector. In my experience many of the farmers that are having to sell because of bank pressure are the parents of young farmers that have supplied guarantees and many farming families are loosing farms they have farmed for over 100 years.

And it's a statement repeated by many other farmers and their industry representatives (lobbyists) in my experience time and time again.

It's not like cleaners as a rule say they work bloody hard for this country - or plumbers or teachers or nurses or any other profession that I can think of.

So, what do you mean by farmers working for this country?

I suspect the inference is exactly as Dairy NZ state above. The rest of NZ is supposed to be thankful to dairy farmers for the export earnings they generate. Well, I for one am not - especially if such earning isn't an earning, but a loss - and especially not if that loss has to be incurred at the expense of the environment.

I feel no greater amount of sympathy for a farming family losing their family home than an urban family losing their family home. We have and continue to attempt to farm marginal land. The country is suffering the effect of erosion of this marginal land in a massive way from an environmental point of view. Here in the Manawatu farmers fought tooth and nail to avoid participating in commonsense better farm management practices as the "costs" to them would be too high. Well, in my opinion, the "costs" to the environment have been too high for too long. Agricultural intensification, in my opinion, is the number one enemy and the government's financial support for irrigation schemes simply adds to that problem.

If the cow isn't a cash cow, well why do we persist in our privileging of this sector?

I wasn't refering to marginal farmland when I made the comment about family farms being lost and sold up.

Ask New zealanders what NZ would be like without the inputs that agriculture brings to this country? No one would be able to answer because we have always been a country that depends on primary produce income ever since the first shipload of frozen meat left our shores in the 1800s.

Everyone is aware of the ag debt and some of the reasons for it, but there was also 3 years drought and poor commodity prices as well as reckless lending and borrowing. Not all farmers are greedy bastards as some would portray.

Have a look at how much land is transfered to QE 2 covenants, I for one fenced of with Council support and QE2 trust 36 hct of canopy native and stream cost to me $15,000 I wasn't complaining more than happy to do it. How many Protected wetlands are on farms, how many of nz's aboretums were created and gifted by NZ farmers.

Tourism had more recently taken the top spot in terms of export earnings;

Tourism is our largest export sector. International visitors contribute $8.3 billion to the economy each year, which accounts for 19.2% of export earnings . During 2006, 2.4 million international visitors arrived in New Zealand .

It also provides much more employment than agriculture.

And indeed more recently, due to the level of gearing/borrowing in the ag sector, one has to ask whether it as an industry threatens, as opposed to strengthens, our international standing.

And for years, every government I can remember churns out another report telling us that for agricultural production to be sustainable, we need to value add - otherwise we remian subject to the fluctuations of the commodities market.

Add to this, the environmental impact of land use intensification.

As for the fencing of streams and areas of rich biodiversity to protect these natural resources from commercial activities - well, it always should have been a mandatory requirement of the business (land) owner. The voluntary clean streams accord has been an abject failure - yet another concession to the industrial polluters who profit from the degradation caused by a private profit taking industry.

I have nothing against a strong ag sector - but it must also be sustainable - and I've seen little evidence of the industry embracing that ideal.

Careful Kate. Tourism beats dairy but not the primary industry sector. That may change this year.

Tourism Export Earnings

International tourist expenditure in 2010 ($9.54 billion) represents 18.2% of the total export earnings ($52.4 billion). Tourism is New Zealand’s largest export earner, followed by dairy ($8.97 billion or 17.1% of exports) in 2010.

Tourism is estimated to support directly and indirectly 182,000 full-time equivalent jobs, or 9.6% (one in ten) of the total New Zealand workforce in 2010.

Dairy employs around 45,000 so it would appear that dairy employees are more productive when you divide the earnings by the number of employees. ;-)

As to our international standing Fonterra's grading by Fitch today, has remained at AA-2 whereas the Ozzie banks have received a downgrade. I would say that the stable rating by the credit agency shows confidence (at this time) in Fonterra.

The voluntary clean streams accord has been an abject failure - yet another concession to the industrial polluters who profit from the degradation caused by a private profit taking industry.
How so?

In The cities and their people: New Zealand's urban environment Report
the Environment Commissioner noted this:

Ah no Kate I don't agree with you re the Cleans Streams Accord - I want you to tell me how it has been an abject failure. I believe that progress is being made in regards to acheiving the objectives. It was never going to happen overnight.

Well yes, progress is being made but not in accordance with the plan of action agreed in 2007.

Last report on monitoring/progress states that 2 of the 5 targets had been met. Full compliance with respect to effluent management stands at 65% - or to put it another way 35% (more than a third of all dairy famrs in NZ) do not comply. Significant non-compliance remains at 15%. 99% of farms have a nutrient budget but there is no data/monitoring to confirm such budgets are being adhered to.

The best data on that issue I guess is water quality monitoring - which suggests we still have a major problem with diffuse (non point source) pollution of our freshwater resources.

Compliance varies region by region Kate. Those regions that are doing best usually have strong Regional Council policies. Fonterra's plans are often stricter than some Regional Councils. On a farm near here a farmer was given a RC 'compliant' grading, then later when the Fonterra guy came along he was 'failed'. The farmer argued the law was with the RC and they had passed him. Fonterra's hands were tied. Until we have uniformity of policy among RCs we will always have problems. e.g. In Southland ALL farms are checked, in the Waikato 10% are. To expect 100% compliance in an industry the size of dairying is wishful thinking, much as I hate to say it. Show me an industry that doesn't have it problem people. Doctors, lawyers and accountants are no different - they all have someone who strays. It is the beast of human nature to have those who push boundaries to the limit and cross them.

The RC in our farm area ask to see the nutrient budget which is easily checkable with fert recepits and type of effluent system operated.

In the Latest Lakes monitoring report the lakes surrounded by native vegetation, and no pastoral farming had the highest rate of degradation - anyone who thinks it is a simple case of 'hit the dairy farmers and ignore the rest' are sadly mistaken. The best response is when the community in an area takes ownership of the problem - not one part slagging off the other. There has been some positive results when this happens.

Until we have uniformity of policy among RCs we will always have problems

Very true - and the National Government just quashed that opportunity with their National Policy Statement on Freshwater Resources, having decided NOT to implement a national standard, but to leave it to the regions to decide individually. I assume to "allow for" further dairy intensification in those regions!

The worst regional offenders will continue to drag the chain, I suspect.

Agree regards the community-led solutions - and yes, I've read a number of very successful case studies in this regard but my general impression is they are often small, tight knit and somewhat isolated communities where the adverse effect on the freshwater resource is negatively affecting other business models in the local area (such as aquaculture).

Why would you compare on margin? Surely you want to look at average wage, more productive they are the higher wage they can demand. What is the average dairy farmer worker earnign compared to the average tourist empolyee (hospitality employees, tour bus drivers?)

My understanding is limited but I don't think it's about how much is produced for the worker (i.e. in terms of their salary) but rather how much is produced for the country in terms of the fruits of their labour.

So if, for example, farm workers work all hours of the day and night and weekends (in other words lots of hours) but the output of their labour produces little surplus (i.e. in this case we were discussing profit as that surplus, given tax is only paid when there is profit) then they are considered to have a poor productivity rating.

Simply put if you put alot of effort in (work hours) for little return (surplus) then you are an unproductive worker.

"As to our international standing Fonterra's grading by Fitch today, has remained at AA-2 whereas the Ozzie banks have received a downgrade. I would say that the stable rating by the credit agency shows confidence (at this time) in Fonterra."

Fonterra's rating is heavily influenced by its ability as a co-operative to reduce its main input cost (milk) to cover any losses it may make i.e. its credit risk lies heavily with its suppliers. Take that ability away and Fonterra's rating may be quite different.

As Fonterra moves to a more corporate ownership structure - the trading shares amongst farmers being one such step - I would expect pressure on its credit rating at least until Fonterra rebuilds its equity. Something which it is attempting - mainly through retentions and by issuing new shares.

(now this is largely built from IRD data so it is probay what the farmers are telling the IRD)

So in 2009 dairy famers made a profit before tax of -1 billion. So it stands to reason that they would not pay a lot of tax. (You can't pay tax on what is not there to tax). So the big question that a wise journalist should be asking, is what happened in 2008 and 2010. (When argubale the industry made money)

The other question I ask, is why did the industry make a loss.

Look at the sales line. a 20 percent but in income, and a 17% rise in interest cost (and a corresponding increase in the liability line too). So I suspect that Mr D Farmer is not whackng a great load into the cash account via buyin toys or "depreciation"

It would also be interestng to see if farmers are boosting their shareholders fund and paying down the liabilities.

My gut conclusion is, very good news story from the Labour Party. (which people could have known about from October 1, when stats released their story). Yes carry forward of losses needs to be tighted, as does the animal valuation and capital stock disposal schemes. But this smacks of kick a farmer when he is up and rile the labour party up about dirty cockies

And because the capital gains were tax free the prices of the farms were inflated. And now farmers will have more deductions in the future to compensate for the excessive amount they borrowed to pay the inflated prices. Brilliant for our economy!

Farm development tax deductibility is broader and more flexible than other industries, they have a clear advantage over other industries even though many here know this and will not utter it. I have a number of Dairy farmer cleints that have done well of late including 09.

Speckles .. has the answer .. most likely the REAL answer .. deductibility of ALL farm development (farm conversions?) costs for tax purposes .. you can assume it has been exploited to the max. And yes others know it .. and probably wont be too pleased with someone potting them. Which leads to another question - did our favourite scribe know?

“We need to set this straight. Our figures show that on average approximately $300 million tax is paid per year by dairy farms, not $26 million as claimed. This includes companies, trusts and partnerships,” DairyNZ CEO Tim Mackle said.

"Our figures show....".

What a laughable data set to extrapolate out to all dairy farms. The credibility of DairyNZ - or at least that of its CEO - is put on the line when they claim their small opt in sample (that excludes corporate farms) provides more accurate information on dairy farm tax paid than that collated from the actual source - tax returns filed with IRD.

DairyNZ is funded approximately $50 million from producer levies and gains a further $100 million by leveraging other grants - mostly from government.

Looking at it, it looks like the liability boom is over in late 2009. Possiblity corresponding the the new boom in dairy prices, or people looking at the P&Ls from the year before and going. Ouch that interest bill is a killer.

When I claim 100 percent on my vehicle expenses, well no apologies to anyone, I am always up to my armpits in mud in it, If I head to town I have to fill the thing up so that when I drive round the farm I can run up kms of road user charges on my own property. And pay road taxes on that same diesel .Same for my 4 wheeler which never sees a road, yet I pay fuel taxes on every drop of petrol that goes in it. Swings and roundabouts boys and girls. Like the ACC which would never help me if I got hurt, cos they reckon my business can carry on without me..... no losses no compo...they reckon.....so I pay huge ACC for nix. And remember folks because my job is so dangerous the levy I pay is much bigger than most....yet I get nothing in return.

Yes you can Julienz, but they dont make it easy and I choose not to bother, sometimes its best not to sweat the small stuff. A few farming friends have had accidents and been denied help. Apparently its getting worse, ACC mucks you around till you give up. My ex partner in an associated industry had a mean accident, and he also was denied. It pays to stay healthy and dont hurt yourself. I am over insurance and the whole industry, and take comfort that I have family that would come to the party if something bad happened.

If you can't be bothered claiming a refund of road user charges as they are small stuff then why raise it as an impostion?

Reagrding ACC - What do you mean by denied help? Do you mean you do not expect to get medical treatment, physiotherapy, a wheel chair, home help, home modifications, or are you only referring to income related compensation? As I understand it all ACC claimants have had to face tighter scrutiny of their claims so really farmers are in no better or worse position than all other New Zealanders who pay ACC levies

Lets say I earnt 40k for the previous tax year, one would think, ACC would have to pay me 80% of that worked out on a weekly basis. Well not. They will only pay someone to come in to do your job that you can not do now. So you have to find someone. When it might be better if you were paid the compo and you downsized your operation by selling some stock say... The fact is by taking away your choice, you lose. Also if I break an arm , and find life difficult for a few weeks, they will muck me around for months and pay nothing.... until I give up. Everytime you contact them they change your case manager. This is now standard response. Whereas the wage earner gets a couple of weeks off all paid. Till fit for work.

The point I am making, without defending ACC, is that this is an issue that affects all New Zealanders, not just farmers. Any self employed person is in the same position. Some wage-earners are pushed off ACC and on to Invalid's benefits It would be good if we could all choose "money or the bag" (with prior knowledge of what was in the bag) but it does not work this way for anyone. Let's not turn this into a "farmers versus the rest" debate if it really needs to be a " how can ACC work better?" discussion. The points you raise about changes in case managers and getting the "runaround" apply equally to people who are not in employment such as students, homemakers or those who want jobs but do not have them.

You can claim off road use Julienz, but in our case the cost of compiling the paperwork involved, isn't worth it. We pay 4.2c per km (approx) in RUC for our ute and don't do large kms off road to make it worthwhile. A large farm, especially sheep/beef could make it quite a different story.

As to ACC sometimes it depends on your case officer. They won't pay if you use family members to help you. The rules do change and I remember a time when the MOTH was off work and we had to prove loss of income - the fact we were getting a dairy cheque each month was deemed to prove that we were still getting an income, so no assistance. Quite a few years later we had cause to claim again. I could have gone in to the shed to milk but then ACC wouldn't pay me, so we got a professional relief milker in (which cost more than what I would have accepted) and ACC paid for them. It actually disrupted our family life less than it would have had I been milking so that was a positive. I have also had home help paid for by ACC when our kids were young. But the trick there can be finding someone to come in and prepare your dinner etc when you live a few miles from anywhere.

In New Zealand we pay tax on our net income and can only claim the tax losses in subsequent years.

Many of our dairy farms would be long established with most of the plant/buildings in place and stock naturally replacing. Taking a guess, I would say at least 70% of dairy farms would fit this profile.

Now what I find difficult to understand is how this 70%+ (guess) of dairy farms could apparently make so little accumulated Nett Profit in one year bearing in mind that Nett Losses can be ignored for tax payment purposes.

I think there is/are still some accounting method(s) being used here apart from the stock revaluations and new farm development mentioned above to reduce Nett Income assessable for tax.

Even in a poor year these long established farms should be making money and paying taxes.

An industry bringing in 25% of NZ's overseas revenue and paying virtually no income tax seems incredible. This same industry ratchetting up its product prices on the local market is bizarre.

I suppose one possibility is that IRD has reported the total Provisional Tax paid for the current year plus the Terminal Taxation paid for the previous year. Looking at actual Tax Cash Flow into IRD for a calendar year rather than the total tax assessed for collection for one Income Tax Year.

I do not think that our politicians will get off easily explaining this situation.

Joa you seriously dont understand farming. When hit with the droughts some of us have been through the previous four seasons, dairy farmers in particular can suffer. The cost of feed outdoes the income from milk production. If you dry off early you have no income and still animals to feed. The Waikato in particular has been shockingly dry. You cant make money if you cant produce milk. At least us drystock farmers can sell our capital stock, to keep us solvent, use the tax deferment strategies, and buy back in when the grass grows. That will keep us in business. And is that not the important point... keeping us in business so that when we do have good seasons we can pay plenty of tax? Like this season.

Although we pay provisional tax and terminal tax, I suspect the IRD have reported on the true accounting period. I.e the sum of provisional tax and terminal tax due on the "profits" made in the year ended March or June 2009.

Also there has not been any reporting on what tax fonterra paid for the 2009 tax year.

I would have thought that most owner/operator dairy farmers would pay themselves a wage or manager salary throughout the season, therefore be subject to PAYE. They would then pay business tax on their operating profit at the end of the financial year, in the season 08/09 being buggar all with low payout, high cost and adverse weather.

CO and Belle, you might know more on how dairy farmers structure their salaries etc.

dinky - it varies. In a simple tax partnership salaries aren't usually taken . They take personal expenses (drawings) from the business, but this isn't deductible. The profit is split according to the partnership agreement and each partner pays provisional tax. Where the structure is a company you are more likely to see a salary paid, though the ones I know the salary earners are provisional tax payers not PAYE. Equity partnerships and some company arrangements do pay manager salaries to shareholder)s) and deduct PAYE from them. IRD requires that any salary deducted from a business is a 'market rate' salary, so you can't under/over pay a salary.

It is worth remembering that for most farmers who employ staff, wages is the 2nd biggest cost after interest.

Yes Dinky, you would think most these days would run a company structure and pay a salary, but that doesnt stop the company making a loss I guess, and getting tax credits. Also the salary can be kept to a minimum to take the full benefits of Working for Families. The government really does need to tighten up on these rorts perhaps, however it will be all business owners taking advantage not just farmers. There really are serious downfalls in being self employed too though. Like the ACC thing, and you dont get sick pay. No work no pay... no holiday pay either, or paid parental leave. There is good and bad with every choice we make, its just a different lifestyle choice. Sometimes I would so like to be a wage earner...other times its so great to own my own business.

"however it will be all business owners taking advantage not just farmers." Nah, sorry. I'd rephrase that as "however it will be all unscrupulous business owners taking advantage not just farmers." Just because you are a business owner and have the option to take advantage of the rules doesn't mean you have to.

As CO said you have to pay yourself a market rate salary so the "minimum" can't be just anything you feel like. If I'd done our returns the way you say all business owners do we'd have got lots of WFF (4 kids) and would have decreased our tax bill (still to come, eek) for last year (I could have split our salaries 50/50 instead of accurately reflecting the fact that I worked less hours than my husband during that year and no one would have known any better). Silly me. Or maybe it's just called being honest.

Oh and btw, you do get paid parental leave when you are self-employed (the rules changed). I printed the form the other day...not that I'll have time for it lol.

I guess what I'm really getting at Belle is the witchhunt over dairy farm tax. If the farmer is paying himself a reasonable salary, paying several staff, plus turning a profit, his business is therefore probably paying a good wack of tax, which has not being potrayed here.

I am certainly aware of the issues here as a S&B farmer. Your right it does annoy me being able to rort the system a bit to claim WFF etc

For those wondering about the tax credits available to Fonterra x 2010 Annual Report. Publicly available for all to read:

Tax expense was $80 million, compared with a credit of $68 million in the previous year.
Key reasons for this change were the recognition of a $61 million deferred tax expense following the Government’s decision not to allow tax depreciation on buildings with a life greater than 50 years and a $68 million lower tax credit as a result of lower distributions relating to this year.
Tax credits arising from distributions are now recognised within the tax expense/(credit)
line on the income statement. Previously, the income tax consequences of the Value Return payment were recognised directly in equity. The tax effect of dividends has been recognised as a $109 million credit in the income statement for the year. The accounting policy change has been applied retrospectively, resulting in a restatement of the financial statements for the 2009 financial year to recognise a $177 million credit in the tax expense/(credit) line in the comparative income statement rather than
directly in equity.

Add in in ownership or contract milker changes within a tax year, a range of other changes in operating structure/relationship breakups plus some activities not ownership or sharemilking that may be classed as dairy farming and 17,000 dairy tax returns being filed seems about right.

Perhaps of interest: Between 2009 and 2010 the number of dairy farms increased by 73 but the number of sharemilkers went down by 137.

The drop in sharemilker numbers should be hte No1 concern for the industry. Do you think contract milkers are included in 'sharemilkers'. There have been even more sharemilking jobs taken out of the industry this season, though an increase in contract milking.

DairyNZ has a note: "Contract milkers are included with owner-operators".

I think that means an owner operator with contract milkers is counted as one owner operator structure i.e. contract milkers aren't counted as separate farm operating structures by DairyNZ, but likely will be by IRD for tax purposes.

The number of contract milkers would be useful information but appears uncertain.

DairyNZ: "Contract milkers are contracted to milk a herd at a set price per kilogram of milksolids produced. The rate is set according to the amount of farm work done. In 2008/09, not all farms with contract milkers could be identiﬁed, consequently, any farms with contract milkers are included with owner-operators."

The New Zealand Government will have to impose a Land Tax, there is simply no other way forward. The accounting firms will loose a lot of work. The Government may actually be able to stop borrowing. You can't hide from a land tax. The only thing to add would of course be a tax on the 200 mile economic zone as well.

"According to statistics there is currently $47 billion of wider agricultural debt, 2/3rds on dairy. That's $47 billion of lending that is being made to an industry that farmers wish us to believe often actually makes no taxable returns. How good is this as a business model?"

Alex T - how about see if you can get Don Brash to comment on this story.

John Key under questioning today in the House stood up and said that New Zealand did have a capital gains regime for land. He is of course correct. However he then said if land was bought to make a profit if would be taxed. Given that the act of farming itself on the land often does not return profits, the commercial rationale for buying a farm can only be put down to its capital gains. That's the problem with the lobbyists arguing farmers are in the poor house.

Les are you implying that Cas O should make use of the Post a Comment function on the Cactus Kate blog???? ;-) ;-)

The rationale above also applies to residential property investment. The IRD could challange the general deductibility of expenses including interest if the structure is such that a profit is not likely to occur. Expenses and the resulting losses are only tax deductible if the activity is continued with the view to derive a profit, if it is set up so it doesn't then.... :-)

The rationale above also applies to residential property investment. The IRD could challange the general deductibility of expenses including interest if the structure is such that a profit is not likely to occur. Expenses and the resulting losses are only tax deductible if the activity is continued with the view to derive a profit, if it is set up so it doesn't then.... :-)

Stuart Nash says, "I would like to clarify the figures re average tax bill for dairy farmers that appeared in today’s press, as there are a few hardy souls out there who doubt them. The figures I used are from the IRD and were derived from written questions to the Minister of Revenue (so a little strange that he has come out and criticised them)."

Not really Dunne is probably no laggard when it comes to joing the dots, he could see where this was going:

"The Minister of Revenue, Peter Dunne, has voiced his long held opposition to a Capital Gains Tax in response to calls for one to be introduced, in part, due to New Zealand’s “severely unaffordable” house prices. However, the Minister failed to give any logical reasons for his rejection of the Capital Gains Tax, instead relying on the “hoary old chestnut” gambit, as if the world has not changed. As the New Zealand Manufacturers and Exporters Association (NZMEA) point out, a Capital Gains Tax would not mean more tax, as tax on profits and income would fall as a result. The Association argues that a balance in the tax load carried by capital and other gains would be better for everyone."

Let's look at these figures. By averaging the figures it creates a distortion - bit like saying the average tax paid by PAYE earners earning under $50,000 is negligible, due to families ability to earn WFF credits that enable them to pay no tax.

The $28m was paid by 8230 farmers, not 17244. So that increases the 'average' tax paid by tax paying farmers to $3402. Then allow for the 2635 who pay tax on income up to $20,000. At 21% this would be a maximum total of $1.1m. That leaves $26.8m paid by 5595 entities = $4789.

Though I derive part of my income from dairying and pay tax on that I am not part of the 17244 entities included in the IRD figures, neither is the MOTH. There will be many more, including city based equity investors for whom the same applies. So as I said yesterday the figure os 17244 while accurate from IRD's data, is not accurate as far as all dairy sourced income tax is concerned.

There are according to this report 72,000 companies in the primary sector. As the 17244 figure includes companies let's be generous as say half of them are companies-8622. That leaves 8622 dairy farming company entities. If we allow 2/3rd of them to be unprofitable (2845) that leaves 37155 primary companies outside of dairying not paying tax.

Bernard how much tax do the forestry companies (they are a primary industry) pay and how much do they receive by way of carbon credit $ funded by the NZ tax payer.Also to bring some balance in to all of this can you get the 2010 figures from IRD - I believe that they will tell a different story.

What a can of worms, eh? Methinks this won't go away too easily. Well done Stuart Nash, on the left; well said Cactus Kate on the right. Here's to achieving a more balanced economy, a broader, more diverse, higher value and less risk prone export mix - who in NZ wouldn't want those outcomes?

I once worked for an 'old school' accountant. He always said 'If you are paying tax you are making money'. I happen to subscribe to that view ;-) Though stock on hand valuations in any busines, farming or otherwise, has the potential to really create a difference between cashflow and tax profit.

I spoke to our accountant yesterday - we are revising our prov tax upwards because of the higher payout this year - he said they were manically busy doing the same for other dairy farmer clients. Methinks it will be a good year for IRD this year in regards to dairy. More prov tax payable, higher farm employee wages = all round more tax going from the dairy sector. :-)

Good for you CO, I hope other tax-payers in dairy are as fortunate. However, if we leave the system as it is, how will it help NZ achieve, "a more balanced economy, a broader, more diverse, higher value and less risk prone export mix"?

It's these outcomes I want to see, as more of NZ will have the opportunity to be fortunate.

Half my family are farmers and they gear up to make profit = 0 and trade purely off the capital gain. Hence most farmers retire very wealthy individuals. Paying very little company tax along the way. Most SMEs who do not see this appreciation in land value. Furthermore the time value of money erodes NZ tax base further. Sure farmers employ a lot of people, buy a lot of P&E, however on the face of it is poor use of capital, and I question how as a business it is justifiable, and how long the government and the general populous can continue to turn a blind eye to this rort. CGT of 15%, calculated annually based on unrealised gains on property revaluation will sort this once and for all. Lets face it this is the same regime that NZ investors face now on offshore share portfolios. What's more they are taking a far larger risk on a fairly illiquid asset as opposed to land. Is IRDs position on this straight up discrimination?

Personally I just don't like Capital Gains Tax. I think it will lead us very rapidly down the third world path. It strongly discourages entrepreneurial activity. I mean really really really strongly discourages entrepreneurial activity.

The problem you seek to address is caused by two factors:

Firstly, the tax deductibility of interest for a business.

Secondly, the policy of encouraging monetary inflation.

I am an entrepreneur, and the only reason I can find for this curious situation is I always seek to understand the causes of a problem. What is the point of seeking to address the result other than to staunch the blood flow as soon as possible?

If we fix the two causes of the problem, which is misallocation of resources, I think we will do well.

Another way - abolish the intent rule and exempt land and property the resultant gains tax as they'd be be subject to a land tax. Implemented gradually while simultaneously unifying corp, trust and paye to one rate in the low 20's. Plus I'd like to see some turbo-chargers for the wider real economy, that is, tax credits for investment in the winning behaviours of investment in People, Product (R&D), Patents, Plant and Process - how would this, "strongly discourage entrepreneurial activity."?

I reckon that's a huge issue for the future as energy and resources increase in scarcity, and also for NZ as a small country.

Unfortunately our tax system is getting more and more complicated when it needs to be simplified, and I don't see any pollies who really would like to simplify it. Personally i'd like to see a lightening on regulation but an increase in punishment for breaking those light rules...ie let finance companies do their thing, caveat emptor etc, but if you do a Hotchin the jailtime is Paremoremo for 15yrs-life..... or if you are dairying you can deal with pollution your own way, but if it ends up in the river the fines start at $250k.....

This is a typical polical story cherry picking information to suit it purpose.
The vast majority of dairy farms are actually small businesses with most of the structures being companies.

Like all small business the company's the majority of the company's income will be allocated out to the the shareholders to take advantage of lower tax rates of individuals up to the 70000 threshold leaving only a residual amount in the entity recorded as a dairy farmer.

For a family farm the figure are most likely reported after 70000-140000 of income has been allocated to owners for effort in working on the farm. Tax will be paid on this.

The big question that needs to be answered to decide if the industry is good or bad is if this allocation to the owners sufficent reward for the type of work performed and the time spent doing it.

How much tax do rural services companies pay each year including their PAYE tax?

How much tax do rural transport companies pay each year including road service charges, fuel taxes and the like?

How much tax do accountants who do the books for dairy farmers pay each year?

How much tax do the boarding schools pay each year who take kids in from farms in the woops?

How much tax GST do shoppers pay on milk, creame, butter, cheese, and other food stuffs sourced from milk solids?

The point I'm trying to make here is that while dairy farmers may not be paying much income tax on their own 'profits' the dairy industry (and therefore dairy farmers) are nevertheless responsible for a lot of economic activity that IS taxed. So it’s quite incorrect (typical self-serving lefties, they just can’t help themselves can they, sad sad creatures) to say that the dairy industry pays no tax. It is directly and indirectly responsible for a lot of tax.

Should individual dairy farmers be paying more tax on their income? Sure, all that requires is a simple adjustment to what is, and what is not allowed as a legitimate business expense. For example I am a great believer that if you borrow to fund an activity that will produce and income (e.g., a loan to boost farm production or to buy the farm next door) then yes, you get to write the interest of the loan off against the direct income it generates. But, if the interest is greater than the income that it produces i.e., there is still a shortfall, well, that’s just your tuff titties. You don’t get to write that off against your other income.

Yes exactly, that’s my point. All industries contribute to the tax base by the economic activity and employment they generate. I wonder what percentage of that $23bn in PAYE that was paid by individual tax payers in 2009 came from individuals employed in the dairy and related industries i.e., money sourced from dairying?

That’s why the premise (and that article) that dairying is somehow not paying its share by just focusing on the revenue that Farmers generate - as though it costs nothing for them to generate that revenue - shows not only a failure to understand how business works, it is also dishonest. But then it came from the Labour Party, what do you expect?

Kate, thing I hate about tourism is all the burning of fossil fuels for the tourists to get here. Once they get here they freedom camp and put stress on our infrastructure - Queenstown anyone? You cant have farming up about environmental problems and not acknowledge tourism's problems. All these wondeerful jobs tourism create are low-waged hotel.motel cleaners/rent a car etc